Tax Liens: What Buyers Need To Know Before Closing

At Dial, Grimm & Rupert, we help buyers, sellers, and investors in South Carolina understand the impact of tax liens and how to navigate resolving those liens so they close with clarity and confidence.

What Are Tax Liens?

A lien is established when a property owner owes a debt to a third party, such as a lender, a judgment creditor, or the government. When tax obligations go unpaid, the taxing authority, such as the IRS or the South Carolina Department of Revenue (SCDOR), will assert a lien on the debtor’s property. These liens usually come from unpaid income taxes or business-related taxes.

How Title Searches Reveal Liens

A title search is typically ordered during the real estate closing process to identify any issues with property ownership. In addition to checking for mortgages and judgments, the title abstractor will look for:

  • County-level tax delinquencies
  • State tax liens listed in the South Carolina lien registry
  • Federal tax liens filed by the IRS
  • Liens linked to a business asset, if the property is held by a company

The Impact of Liens on Fair Market Value and Sales

The discovery of a tax lien can significantly impact the timing for the closing or may even cause cancellation of the transaction. The Settlement Agent will request a payoff from the lienholder and then determine whether the lien can be satisfied as part of the closing.

Sometimes, the Settlement Agent may discover a tax lien attached to the property that is tied to prior owners or to business obligations that were missed before the current owner took title. Even though that lien might not be the Seller’s debt, it will be the Seller’s obligation.

The “Invisible Lien”

The real estate equivalent of the classic horror trope of “The Invisible Man” is the dreaded South Carolina tax lien imposed under SC Code §12-54-124.

In the case of the transfer of a “majority of the assets” of a business, any tax generated by the business that was due on or before the date of any part of the transfer constitutes a lien against the assets in the hands of a purchaser, or any other transferee, until the taxes are paid.

The lien is “invisible” because there is no lien book for the South Carolina Department of Revenue that can be accessed to find it. It arises automatically when a business entity that has not filed or paid taxes sells more than a majority of its assets.

Whether a majority of the assets have been transferred is determined by the fair market value of the assets transferred — not by the number of assets transferred.

In a nutshell, if an entity (corporation, LLC, etc.) has not paid its taxes and then sells real estate, those unpaid taxes become a lien against the real estate, and the buyer could end up paying the seller’s taxes.

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The “Invisible Lien”
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How Can Your Settlement Agent Protect the Buyer from the Invisible Lien?

First, the Settlement Agent will ask the seller if the property being sold consists of “business assets” (usually the answer is “yes”).

Second, the Settlement Agent will ask the seller if the property being sold comprises less than a majority of the assets of the business.

    • If the answer is “yes,” the closing can move forward.
    • If the answer is “no,” a Certificate of Tax Compliance must be obtained from the South Carolina Department of Revenue.

The Department of Revenue estimates the turnaround time for a tax compliance certificate at up to two weeks. Additionally, the Settlement Agent cannot request it — the Seller must sign the form and advance the fee.

Most of the time, the Seller will sign an affidavit at closing stating the property is either not a business asset or is not a majority of the business’s assets.

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How Can Your Settlement Agent Protect the Buyer from the Invisible Lien?

What Buyers Should Expect at Real Estate Closing When Liens Exist

If a lien is discovered before closing:

  • The seller may pay off the lien to deliver clear title
  • The buyer and seller may renegotiate contract terms to address the lien or timing
  • The transaction may be delayed while the lien is resolved

Why a Real Estate Attorney Is Essential When Transferring Real Estate

Liens involve legal complexities that can disrupt a real estate deal. Even if the property is being transferred between family members or outside of a traditional closing, liens will attach and transfer to the new property owner if not addressed.

A qualified real estate attorney can:

  • Review and explain title documents
  • Contact tax authorities to verify and resolve liens
  • Protect your interests during closing to ensure clear title
  • Provide a title insurance policy for added protection against the later discovery of a hidden or missed lien

How to Stay Ahead of Tax Liens as a Property Owner

If you are preparing to sell a property or refinance, addressing tax compliance in advance can reduce the chance of lien-related problems. This includes:

  • Staying current on property tax bills
  • Resolving any income tax or business tax obligations
  • Knowing whether the property is classified as a business asset or whether it is a “majority” of the business’s assets
  • Obtaining a South Carolina Department of Revenue Certificate of Compliance upon ratification of the contrac

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Protect Your Transaction from Delays and Unexpected Tax Liens

Tax liens are not always visible at first glance, but they can impact real estate transactions in a major way. Whether you are buying, selling, or transferring real estate, it is important to conduct a full title review and resolve any outstanding issues before closing.

At Dial, Grimm & Rupert, we assist clients throughout South Carolina with real estate closings, lien matters, and title concerns. Contact us if you need support with your next transaction.

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